Federal judge approves Energy Future Holdings restructuring plan

Dive Brief:

A U.S. bankruptcy court in Delaware has approved Energy Future Holdings' plan to reorganize and emerge from bankruptcy protection. The plan includes a tax-free spinoff of its competitive businesses Luminant and TXU Energy, alongside the sale of regulated utility Oncor, the Texas Tribune reports.
In addition to the court's approval, EFH will also need to receive regulatory approvals and satisfy various other closing conditions in order to emerge from Chapter 11 bankruptcy protection; the company said the the process could be completed by Spring 2016.
The restructuring includes a plan to turn Oncor into a real estate investment trust (REIT), but opponents of the plan are skeptical it will succeed; it would be the largest utility ever run under such a structure.

Dive Insight:

The lengthy bankruptcy case involving Oncor may be coming to a close: U.S. District Judge Christopher Sontchi in Delaware has approved the company's controversial plan to exit Chapter 11, moving company officials to look optimistically toward the future.

“We are pleased to have reached this critical milestone on the road to emergence,” EFH CEO John Young said in a statement. “We can now begin, in earnest, to build for the future, with a strong capital structure, excellent assets and a singular commitment to delivering for our customers, employees and business partners in Texas’ growing, competitive market."

EFH said it expects the regulatory process to extend until spring 2016, though the final timing is uncertain.

In August, Hunt filed an $18 billion bid with Texas regulators to buy Oncor, which included a plan to turn the transmission & distribution utility into a real estate investment trust, shifting the tax liability away from the company and over to shareholders. But the arrangement has never been attempted with a utility of Oncor's size, leading some to doubt the outcome.

"Our financial restructuring has been among the most complex in history, and it is a credit to our entire team and our outside advisors that the company has reached this point while maintaining stellar customer service and operational excellence," said Young.

With the judge's approval, the first lien creditors of Texas Competitive Electric Holdings Company (TCEH), the merchant energy subsidiary of EFH, will receive TCEH's assets in a tax-free spinoff. That portion of the deal will satisfy approximately $25 billion in claims. Following that, the creditor consortium would acquire EFH and its 80% ownership stake in Oncor.

The newly restructured REIT will be owned by a consortium managed by Hunt and including Anchorage Capital Group, Arrowgrass Capital Partners, Avenue Capital Group, BlackRock, Centerbridge Partners, GSO, and the Teacher Retirement System of Texas.

While Judge Sontchi's approval strengthen's Hunt's case for acquiring Oncor, it is not the lone bidder. NextEra Energy, once favored to buy EFH's prized asset, complicated the bankruptcy saga last month when it made a new bid to acquire Oncor, saying its plan is less risky than the REIT proposal and more likely to pass muster with regulators.

In a statement along with its filing, NextEra officials said they were prepared to buy the Texas utility, repay the full value to its creditors and clear "any third party debt that resides above Oncor" if its proposed sale to Hunt does not go through.

NextEra did not include price details in its filing, but says it is prepared to negotiate. The Public Utilities Commission of Texas has already opened a docket to evaluate the potential deal and its REIT conversion plan. The agency has set a hearing for January 2016.